The 5 Secrets of Silicon Valley

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Above all, celebrate failure. Silicon Valley has entrepreneurs who got lucky on their first try. But more succeeded on their second or third attempt.

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As a serial entrepreneur and professor in Silicon Valley, I am frequently asked what it takes to create an ecosystem of start-up innovation. Usually, the question is phrased like this: "What does it take to create a Silicon Valley in our backyard?"

I give everybody the same answer: "Invite a bunch of entrepreneurs into a room. Then leave."

One of the most important, and underrated, aspects of entrepreneurship clusters is location. Entrepreneurs don't need "teaching" so much as space. A place to gather, share ideas, experiment, fail, and settle on an innovation.

From my experience, there are five elements to every success "ecosystem" of entrepreneurship.

1) A culture of collaboration: To lean over to a group engaged in conversation at a table next to yours at a Silicon Valley coffee shop, and ask, "Do you know anything about [programming platform] Ruby-on-Rails?" is tantamount to saying, "Oh hi." We ask people we meet about technology, about trends, and what they're up to, and what new project their friends just started. There is an informal air of collaboration in Silicon Valley. It's network-building friendships. It's informal mentorships. And it's everywhere.

2) Aligned incentives: In Silicon Valley, both social and economic incentives are aligned so that everybody is utterly committed to building something amazing. Members of a start-up get generous stock options or another type of ownership in their company. Outside of Silicon Valley, this is highly unusual. Inside Silicon Valley, it's not unusual to work late on a Saturday night understanding you are part of a greater mission. Seeing others around you who have cashed out when their start-ups were acquired -- and then do it again and again -- is both a motivator and a reminder that the entrepreneurial spirit is about the hunt.

3) Critical mass of talent: Blame it on the weather. Or the ten top-notch educational institutes within a 40-mile radius. Or decades of government investment in military technology. Silicon Valley is an unparalleled hot bed of highly-educated, highly-motivated people. It's the one place where, at almost any party on a Saturday night, the people sitting around any given table could probably stand up and start their own successful company. From engineers to marketers, to investors, to venture capitalists, to legal eagles, the proximity and concentration of this talent creates something special.

4) Respect of intellectual property: Some entrepreneurs say they are frustrated by patents limiting creativity. But informally, Silicon Valley has great respect for IP. Entrepreneurs often sign confidentiality agreements and there is a general expectation that if somebody shares an idea, you won't outright steal it. This makes people feel more at ease with sharing and discussing their breakthroughs, which is absolutely essential for using the network to refine ideas.

5) A capacity to celebrate failure: This might be unique to Silicon Valley, but it's essential for any innovative environment. In Silicon Valley, people wear their failure as a badge of honor. You are likely to be offered a higher salary if your last venture was a failure than if it was a success. Failure means that somebody else has paid the "tuition" for your learning experience, so the next team doesn't have to impart the same lessons. The saying in the Valley is "fail fast" so that we can move on to the next thing. The feared alternative are "zombies" -- companies that should be dead, but continue to linger, keeping their founders and engineers hostage to their mere existence.

This final element might be the most surprising. Silicon Valley is filled with entrepreneurs who got lucky on their first try. But many only succeeded on their second or third attempt.

My first company was a commercial failure after we raised $4.2 million and put in three years of real hard work. But I learned valuable lessons about talking to potential customers before making the product. I also acquired deep domain knowledge in chip engineering. So when Quickturn [a hardware design company] called to recruit me, the failure of my first start-up was the least of their concerns. They were excited about my extensive knowledge of the space and how I had learned to sort out the dynamics of working in an explosive environment of small teams made of Type-A players. We took the company public five years later.

I was recently speaking at a university in Belgium on the topic of entrepreneurship. The  audience was not connecting. These researchers had large grants and good working hours, and they simply did not see the point of putting in 80-hours a week with sub-standard pay when the odds were stacked overwhelmingly against their efforts producing a multi-million dollar success. And that, in a nutshell, is the difference between Silicon Valley and the rest of the world.

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Naeem Zafar is a faculty member at the Haas School of Business at the University of California Berkeley. He is author an author, speaker, and entrepreneur working on his seventh startup in the area of enterprise mobility.

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